Stricter oversight of Chinese investments in technology possible

The New York Times is updating a report relating to the Pentagon’s concerns relating to the flow of Chinese investment into start-ups working on important technology like artificial intelligence, robotics and augmented reality.

“White House officials and a group of lawmakers on both sides of the aisle are pushing for new laws intended in part to keep closer tabs on the surge of Chinese money into America. Some in Washington say that money could help China expand its technological and military abilities. While any legislation would face congressional debate and review, a large number of Trump administration employees who deal with both trade and national security have said they support some sort of overhaul of how the United States vets such deals.”

With cybersecurity concerns and alarms at a high, there is clearly a basis for a stricter scrutiny of trade in sensitive technology. Furthermore, with the periodic pressures placed on China’s currency, and outward capital flows, it is not surprising to see capital flows into US technology and financial companies. And this investment does not come without a series of political and financial risks.

Still, upgrades in oversight generate a number of questions for trade, finance, fintech and international economic regulation more generally. I wonder, in the immediate term, what enhanced CFIUS oversight would mean for the bilateral trade accord struck between Trump and Xi in May. Under the terms of the 100-day agreement, China would allow, among other things, a limited number of American bond rating agencies and underwriters to provide services there. It is not inconceivable that tighter oversight of technology could, if maladroitly implemented, create the basis for a backlash against the (very) modest liberalization pledges made thus far by China in Trump’s presidency. What will be needed is some hard work on the articulation and operationalization of transparent standards of review.